Annual inflation in Russia has slowed down to 6.5%

The increase in consumer prices in Russia in July accelerated to 0.8 percent the previous month, mainly due to higher tariffs of natural monopolies and dairy products, but slowed down yoy to 6.5 percent, which, coupled with the continued deceleration of the economy may encourage the CBR to lower interest rates at its next meeting on August 9. 

Reuters poll late last month, economists forecast the average inflation rate in July of 0.9 percent, and most expected the Board of Directors of the Bank of Russia in August, will leave key rates unchanged and reduce them in September.

In mid-July, the Central Bank has kept its benchmark interest rate unchanged, explaining that he wanted to first ensure the sustainability of the trend deceleration of inflation before cutting rates.

Annual inflation in June was 6.9 per cent, down from 7.4 per cent last month.


"In July, we have seen a significant reduction in yield … to the target values of 6 percent more than likely. At the end of the year, we continue to see inflation at 5.7 percent. In principle, the inflation figures favorable to declining rates, "- said Alexander Morozov from HSBC.

For the benefit of lower rates, according to him, even more so continued into July, said the economic slowdown.

"Recent economic data, surveys that have come out have shown a very sharp slowdown until the reduction of the dynamics of economic activity in Russia in July … I think that slowing inflation and a sharp slowdown in economic growth will play a decisive role, and yet allow the Central Bank to lower rates. The economic situation has deteriorated very quickly, and in such a situation it is important to take prompt decision ", — said Morozov, suggesting that the Bank of Russia on Friday may reduce the key rate by 25 basis points.

In an interview with Reuters in late June, which replaced Sergei Ignatiev, the new head of the Central Nabiullina allowed lower interest rates the Bank of Russia in the third quarter, when hopes of slowing down the rate of inflation will be justified.

Vladimir Kolychev of Rosbank believes that despite the good trend of slowing inflation, the Bank of Russia soon decides to postpone the reduction in key interest rates by 25 b. section in September.

"From our point of view, the risk that inflation will accelerate, no. But there is rhetoric and understanding of what was once the Central Bank reacted exclusively on inflation, and if this function has not changed, in theory it should not change the rates now … and will only cut rates when inflation falls below the target reference ", — said Kolychev, considering with the right to the Central Bank on Friday lowered rates by 50 b. §

Elvira, whose appointment as head of the Central Bank, many analysts linked with the desire of the authorities to mitigate interest rate policy for the promotion of economic growth, has repeatedly said that the slowdown in inflation is a priority for the Bank of Russia.

Central Bank expects that inflation will go down to the range of — 5.6 percent — by the end of the year.

"We would not be surprised if the Central Bank and will aggressively cut rates, but then there will be an understanding that we have a new CBA, more proactive," — said Kolychev.

Tariffs, milk and carrots

In June, inflation was 0.4 percent in May. The main influence on the acceleration in half by the growth of tariffs for services of natural monopolies.

Due to the indexation of gas, electricity and housing services in July rose by 3.1 percent (in June — a 0.6 per cent).

Tariffs for housing and communal services in July rose by 7.0 percent. Most increased fee for the network and LNG, as well as electricity — by 10,1-12,9 percent.

As in the previous month rose fare in different types of cars long-distance trains — 8,7-9,3 percent.

In the Food for 0.9-1.4 percent increased prices of some dairy products such as milk, dairy products, yogurt, cottage cheese, as well as cheeses and cheese. The prices for carrots (4.0 percent), oranges (1.2 percent) and apples (0.9 percent).

Among non-food items the prices of tobacco products, including Russian cigarettes without filter — 2.9 percent.

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